Unfiled Tax Returns – Delinquent Tax Problem Solutions to Back Taxes

unfiled tax returns

​If you have unfiled tax returns, there are a number of questions probably running through your mind.

Perhaps you have not filed your tax returns with the IRS in three years? five years? ten years?

This article addresses the most commonly asked questions about unfiled tax returns and the steps necessary to get your life back on track.

How Many Years of Unfiled Taxes Should I File?

Internal Revenue Manual 1.2.14.1.18 and IRS Policy Statement 5-133 states the IRS will require you to file the last 6 years of tax returns in order for you to be deemed compliant.


However, this section of the manual also states that are other considerations as to whether enforce for longer or shorter periods.

Factors to be considered by the IRS are:

  1. Your history of noncompliance

  2. Whether you derived income from illegal sources

  3. “Any special circumstances” such as the industry that you are in or type of work that you do

In other words, in cases where the IRS thinks that you may have hidden money or you perhaps engaged in illegal activity, the IRS may require additional years to be filed.

Although the majority of nonfiler cases are handled as a civil matter, it is recommended that a tax attorney experienced in delinquent tax returns and IRS collection matters contact the Internal Revenue Service as well as the State taxing authority on your behalf.

You only maintain attorney-client privilege with an attorney. There is no such confidentiality privilege with an accountant or enrolled agent.

In these type of matters, it is better to error on the side of caution and have a tax attorney reach out the taxing authorities on your behalf.

Is Failing to File a Tax Return a Crime ?

The willful failure to file a tax return is a misdemeanor that will result in a maximum sentence of one year in prison for each tax year that was not filed.

Also, tax evasion is a felony carrying a maximum sentence of five years in prison for each tax year.

Now, before you run out the door on hide you head back in the sand, understand that the criminal prosecution of non-filer cases is rare.

There has be to a “willful failure to file.”

The vast majority of unfiled tax return cases that we handle in our office involve individuals or small business people who got behind on their taxes due to a downturn in the economy; financial hardship; divorce; or poor recordkeeping.

You get scared; overwhelmed; and don’t know what to do next so one year of unfiled tax returns all of sudden becomes 10 years!

If this is like your tax problem case, it is likely that your tax problem will not rise to the level of “willful failure.”

In other words, neglect and procrastination is typically not a crime.

Here is some more good news.

The IRS has a voluntary compliance program for non-filers that will help you avoid criminal prosecution. New York State as well as other states also have a voluntary compliance program.

The IRS Voluntary Compliance Program

The IRS “voluntary disclosure” policy will allow those with delinquent tax problems to come forward to file their unfiled tax returns.

If you do so before the IRS investigates the matter, you will likely avoid criminal prosecution.

Here is the criteria:

1. You voluntarily advise the IRS of your failure to file for one or more tax years.

2. You have only legal sources of income.

3. You made the disclosure to the IRS prior to being informed that you are under criminal investigation.

4. You file a correct tax return with the IRS in determining your correct tax liability.

5. You enter into and comply with a payment arrangement with the IRS.

Although criminal prosecution is rare, It is important that your unfiled tax returns are prepared carefully so that they do not trigger a criminal investigation.

As such, you should hire a tax attorney to coordinate the preparation and submission of your delinquent tax returns.

What Will the IRS Do If I Don’t File?

The IRS may pursue you from a criminal standpoint.

States, such as New York, are highly aggressive when it comes to nonfiler cases and your chances of criminal prosecution increases with certain types of state tax issues.

If the IRS or State does not pursue you from a criminal standpoint, they will continue to pursue you for the purposes of civil enforcement.

Just because you may not have heard from the IRS or state taxing authority in a while, it does NOT mean that they have forgotten about your back taxes.

At the very least, you will be subject to a tax lien, wage garnishment, and/or bank levy when the taxing authority finds out where you work or do your banking.

Financial institutions and employers are legally required to report the IRS. Therefore, it is only a matter of time before the IRS or State finds out where you work or bank.

Once you get to retirement age, the IRS can garnish your Social Security as well as your retirement distributions as a result of your back taxes.

On the state level, such states as New York, may suspend your driver’s license if owe back taxes.

What If I Do Not Have My Income Tax Records?

Although it is overwhelming, the starting point of getting back into the system is compiling your records for purposes of preparing your unfiled tax returns.

If you lost your tax records, we can obtain your wage and income transcripts from the IRS.

What is a wage and income transcript?

When you work for a company; are paid a commission; or a bank pays you interest, the employer or financial institution is required to send that information to the IRS.

The IRS will maintain wage and income transcripts for each taxpayer for reported income.

We can check the income reported on your wage and income transcripts against your own records for each tax year that we are required to file.

It is also important that you gather your own records, such as W2s, 1099s, bank statements, etc.

We can guide you through the process of getting a number of unfiled tax returns filed, step by step.

When numerous years of unfiled tax returns are filed, they are going to undergo additional scrutiny by the IRS.

Therefore, it is important that the tax returns are prepared “conservatively” and you can document all deductions in case of an audit.

Four Common Delinquent Tax Return Notices


In order to determine the type of delinquent tax notice that you have received, look at the upper right hand corner of the letter that you received from the IRS:


CP59 Notice: The IRS will send you this notice when they have no record of receipt of your prior income tax returns.

CP 63 Notice: The IRS will send you this notice to let you know that will be holding your tax refund because you have failed to file one or more tax returns.

CP 259 Notice : You will receive this notice if you own a business and have unfiled tax returns.

CP 515/CP 516 Notice: These are reminder notices from the IRS that you or your business has not filed your past due tax returns.

It is quite common for many taxpayers with unfiled tax returns not to open letters that they receive from the taxing authorities.

It is important that you open all IRS collection notices as the notices are a road map that a tax attorney can use to help you understand what the IRS is going to do next.

What If I Ignore the Notices to File ?

If you do not file your delinquent tax returns, the IRS may decide to file your taxes for you!

This is called a “substitute for return.”

The Substitute for Return does NOT include deductions, credits, expenses etc. Oftentimes, your filing status is incorrect as well.

You will then receive a bill from the IRS to pay the back taxes that are due, plus interest and penalties.

As such, you will owe the IRS this inflated amount of taxes plus penalties and interest unless you file a tax return to correct the Substitute for Return.

If you have any unfiled tax returns, a tax attorney should review your account transcripts to determine if the IRS filed any substitutes for returns (SFRs).

These SFRs can be replaced by income tax returns that are properly prepared.

By having your delinquent tax returns properly prepared and submitted to the IRS, this will likely reduce the amount of inflated taxes that you owe the IRS as reported on the SFR to a lower figure.

This is called audit reconsideration by the IRS. These tax returns are scrutinized by the IRS so it is important that an experienced tax attorney guide you throughout the process.

Interest + Two Penalties For Unfiled Tax Returns

Interest and penalties can cause a back tax liability to possibly double over a number of years.

The interest you are charged is the federal short term rate plus 3%. Then, you typically have to add two penalties to the interest:

​1. Failure to Pay Penalty

The failure to pay penalty is 0.5% of the unpaid taxes for each month or part of a month after the due date.

The failure to pay penalty begins the day after your tax filing due date and increase by ½ of a percent every month!

Therefore, if you have failed to pay the IRS for approximately 24 months or so, you will owe the IRS approximately a 25% failure to pay penalty ( the maximum of the penalty ).


2. Failure to File Penalty

The penalty for filing late is typically 5% of your unpaid taxes for each month your tax return is late.

The penalty increases by 5% for a maximum of 5 months.

As you can see, the failure to file penalty can be as high as 25% of your unpaid taxes for that tax year within 5 months.

This penalty begins the day after your taxes are due.

As you can see, the failure to file penalty is much higher than the failure to pay penalty.

Therefore, you should always file your income tax returns for two very specific reasons:

  1. Your penalties will be less.

  2. Failing to file a tax return is a crime. However, failing to pay your taxes is not.

Penalties and interest can really add up so the more quickly you address your tax problems, the more likely you will be able to mitigate the penalties and interest on you back taxes.

What is the Statute of Limitations ?

There is no statute of limitations ( period of time) on collecting back taxes on unfiled tax returns.

There is a 10 year statute of limitations on collecting a back tax debt once the tax is assessed.

In order for the tax is to be assessed, you must file your tax returns.

Therefore, if you want the statute of limitations to run on collecting the back taxes, file your delinquent tax returns.

Also, the IRS will only have 6 years from the date that you file your taxes to assess any additional taxes.

Can I Get My Refund?

If you are entitled to a tax refund, you must file your unfiled tax returns.

You may be eligible to receive a refund for the last 3 years, even if you have unfiled tax returns.

And, you will receive the interest on that refund as well.

If you fail to file your back tax returns, you may lose your right to obtain those refunds as the IRS has a three year statute of limitations on the right to obtain refunds for previously unfiled tax returns.

Will Declaring Bankruptcy Help?

If you have delinquent tax returns and the tax debt arises from the unfiled tax returns, those tax years will not be dischargeable in bankruptcy.

In other words, you must file your delinquent tax returns in order to discharge the back tax returns.

Typically, the income tax return must be on filed with the IRS more than two years before the bankruptcy is begun.

A tax attorney will analyze whether bankruptcy is a viable option or whether other tax debt settlement options make sense.

Settling Your Tax Debt

Tax debt settlement options with the Internal Revenue Service or such states, as New York are not available to you UNLESS you are in compliance with the tax law.

In the eyes of the IRS and most state taxing authorities, compliance with the tax law means that you have filed all of your unfiled tax returns.

First, if you are looking to reduce or settle your tax debt, the first step is to seek counsel from tax attorney.

A tax attorney will oversee the preparation and filing of your delinquent tax returns.

Second, a tax attorney will also maintain communications with the taxing authorities on your behalf and ensure that your delinquent tax returns are filed as per the deadlines set by the IRS.

Third, a tax attorney will advise you as to what you should reasonably expect to pay the taxing authorities and help you negotiate your balances with the IRS and State.

Unlike most Certified Public Accountants, the tax attorneys at the Tax Problem Law Center routinely handle non-filer matters, like yours, on a daily basis.

Also, all your communications with our tax law firm will be confidential and covered by the attorney-client privilege.

Communications with accountants are enrolled agents are not privileged.

Five Steps We Will Take

1. We will gather all the information necessary from the Internal Revenue Service.

2. We make sure that your unfiled tax returns are accurately prepared and filed.

3. We advise you as to the steps that will need to be taken to arrange a workable solution.

4. We will implement the most cost effective solution on your behalf.

5. We will keep you apprised every step of the way.

What To Do Next

If you have multiple years of unfiled tax returns, you are likely feeling overwhelmed and do not know where to start.

Whether you are missing documents ; don’t know what years you owe for; or have been contacted by the IRS, we have handled it before.

We know exactly what needs to be done, and will guide you, step by step.

Remember, it’s not a crime to owe money to the IRS. However, it is a crime not to file your taxes.

The Tax Problem Law Center can help you resolve your tax problems but you must take the next step: